Podcast Interview on 401(k) Plans and Behavioral Finance Trends

Thanks to Rick Unser for having me recently on his 401(k) Fridays podcast. This interview is geared toward defined contribution plan sponsors and those closely related with this segment of the market (e.g., advisors, consultants, recordkeepers, investment only). I do draw from some insights and activity that is occurring in other areas of the financial services market (e.g., retirement income, wealth management). The podcast may be found at:

Apple Podcasts – https://apple.co/2EAsw5J
GooglePlay – http://bit.ly/2Hfsgfa
Stitcher – http://bit.ly/2Uj08eT

Additionally, some references that I allude to on the podcast which may be of interest to folks include the following:

When Implementing Behavioral Science, What Is the Role of a Choice Architect?

This post is based on an answer I wrote in response to a question posed to me on Quora, “What do choice architects do?” I wanted to repost my answer here because I still feel there is a lack of understanding about what it means to implement nudging and behavioral science within companies, and the role of choice architects are key.

Choice architects essentially use insights from behavioral science to design environments for people that encourage or support some sort of end goals.

For example, suppose there are a layered set of three main goals to encourage people to 1) participate in a retirement savings plan, 2) save enough money, and 3) invest wisely. A choice architect may address behavioral obstacles that may hamper these goals from being met through creating solutions. These solutions could include auto-enrolling people into a retirement plan (versus having them opt-in) to address behavioral obstacles associated with status quo biases that hamper participation in a saving plan. In order to get people to get to healthy saving rates over time, the architect may create a way for people to commit today to savings increasing in the future (a process which addresses psychological biases associated with present bias and hyperbolic discounting). Finally, an architect may default most people into an automatically managed, diversified portfolio that evolves as the person reaches and continues into retirement. This essentially makes a healthy investment choice easy as a default for most people and for most of their money.

So choice architects do the following things:

  1. They identify goals of all constituents, any guardrails (e.g., ethical, philosophical, financial), and desired outcome measurements.
  2. They look for behavioral obstacles that people face in whatever environment is being addresses or designed (e.g., financial spending, medication adherence, governmental compliance).
  3. Architects try to leverage behavioral science research where they can (e.g., to inform the precise nature of obstacles, potential ways to address).
  4. They innovate and try to create solutions and interventions to address behavioral obstacles (e.g., website design, text messages, email content, customer outreach, product design, decision tools).
  5. Architects also look to measure and perform A/B testing where they can to see how solutions and interventions impact outcomes.

How Do Management Consultants Quickly Come Up To Speed On Projects?

This answer is based on the response to a question I was posed on Quora.

Here are some of the main ways I’ve seen consultants get briefed on projects.

  1. Engagement manager – The engagement manager has responsibility for the client problem statement and the problem-solving structure (i.e., project tactics). As the on-the-ground, field leader, the engagement manager can help to get new people on the project oriented both from a high-level and with their role on the project.
  2. Engagement workplans and blueprints – Some projects have clear engagement workplans laid out at the outset. Sometimes the high-level workplan is set out before the project even starts. If not before, then most certainly the workplan is addressed in the first week +/-. These often breakdown the workstreams, key activities, deliverables, project roles, and governance structure. Blueprints which potentially specify the templates that should be completed may even be available in some cases. These structures help keep consultants focused on what matters and may help them avoid re-inventing the wheel.
  3. Management reports – Consultants often get reports normally directly accessible by the management teams. This helps to accelerate knowledge transfer and provides a lay of the land within any limitations of the reports (which may also need to improved based on mutual agreement between the consultant and client).
  4. Peers – Consulting is really based on apprenticeship and teamwork. Consultants often ask peers on the consulting team for information they’ve learned, feedback on approaches, etc.
  5. Industry reports – Consultants often dive into industry reports very close to when they arrive onsite for a new client. This can help the consultant come up to speed about industry-specific terminology, product offerings, competitors, new entrants, regulatory issues, geographical considerations, etc.
  6. Client interviews – Consultants also get very key info through interviews with client management and personnel. These sessions are usually motivated by the engagement workplan and are used to assess the current state of a particular area, identify issues, collect ideas, and get color regarding business operations. It is often preferred that items #1 through #5 are explored to some extent as preparation for client interviews.

Quick Thoughts on Boosting Versus Nudging

I only recently learned about the term “boosting”. Boosting takes a different worldview of addressing a person’s competencies whereas nudging tends to address immediate behavior. There does appear to be some overlap between boosting and System 2 nudges (where the nudge tries to engage a person’s slow, reflective thinking). There is also overlap between short-term boosting and educational nudges. However, long-term boosting is about building a person’s competencies (e.g., teaching them, giving them tools, getting competencies to persist even beyond the immediate decision point). A boost appears to necessarily require both transparency of the intervention and cooperation of the person who is a target of the boost. Those advancing the concept of boosting admit that boosting may actually be more costly to implement and less effective on affecting immediate behavior as compared to nudges.

For more details on boosting, I recommend starting with the following paper.

An Anecdote on How Experimental Design and Statistics Are Used in Behavioral Economics and Business

In recent study I having been working with Hal Hershfield and Shlomo Benartzi at UCLA, we worked with a FinTech company that had its roots in providing a mobile app to Millennials to get them to save incremental money through rounding up purchases. For example, if you bought a cup of coffee for $4.55, you could round things up to $5.00 and save the incremental $0.45.

We wanted to introduce the concept of a recurring savings feature, where people could save a specified amount of money at regular intervals. As part of that effort, we constructed an experimental design and A/B/C test where during the sign-up process, users were randomly assigned to one of three treatments where they were given an opportunity to save: A) $150 per month, B) $35 per week, or C) $5 per day. At the heart of the design is the notion of presenting essentially equivalent information but using temporal reframing to present the choice option differently. Our hypothesis is that the $5 per day treatment would yield the most success in terms of sign-ups for recurring savings. So we use traditional statistics to show that the difference in sign-ups between these treatment conditions is statistically significant. In this case, we provided evidence that sign-ups were 4x higher using the daily frame and that we could close an income discrimination gap of 3x between the highest and lowest income users in terms of percentage of people saving comparatively between the monthly and daily temporal framing. More details on the study can be found here: Temporal Reframing and Savings: A Field Experiment

In other studies I am involved with related to the different framing of information and savings, I measure not only outcomes like savings rates (i.e., what people do and choose) but also people’s thoughts, perceptions, and mental associations regarding the financial decisions (i.e., the psychology and process). Using statistics to better understand the underlying psychology behind people’s decisions can help inform one in providing better user experiences (e.g., to improve outcomes, reduce confusion, increase confidence).

Statistics can be a very powerful tool to have when trying to analyze messy things like social science processes and human decisions. Companies are starting to ramp-up their data science capabilities a lot more, and while I think much more can be done in terms of incubating behavioral science initiatives, I think the shift to data science will be here to stay for quite awhile.

Example Companies Involved with Behavioral Economics

Here are some consulting firms and practice groups in the behavioral science and economics space:

These days I see an increasing number of internal behavioral economics groups or initiatives starting within traditional companies or organizations. Here are some examples:

I also see more independent consultants in this space as compared to what I used to see 10 years ago.

The lists above will be updated from time to time.


Steve Shu specializes in incubating new initiatives with a primary focus on strategy, technology, and behavioral science. He is author of Inside Nudging: Implementing Behavioral Science Initiatives and The Consulting Apprenticeship: 40 Jump-Start Ideas for You and Your Business.

One of the Best Ways to Market Yourself as a New Consultant

One of the best ways to market yourself as a consultant is by having someone refer you to a client prospect. This type of marketing can be viewed through the lens of “networking by helping someone” (in contrast to networking and just meeting lots of people). These are investments you make to both build your reputation and professional networks.

As an example, for one of my first clients as an independent consultant, I got in the door through the referral of an IT systems consultant (met at a local lunch talk) who needed to help their client do an operational analysis. I first helped the consultant and then the client to understand how operational analyses were done and provided them with some tools they could use (e.g., gave them some management one-pagers I wrote on their topic). They then invited me to propose to them.

Marketing as “networking by helping someone” is a key tool to have in your kit. It is the idea of helping before selling. Once you have successful clients, you can then refer to the general experiences as case studies (often anonymized, but not always). These case studies accumulate, and they serve as resources that can help your marketing efforts as a consultant.


Steve Shu specializes in incubating new initiatives with a primary focus on strategy, technology, and behavioral science. He is author of Inside Nudging: Implementing Behavioral Science Initiatives and The Consulting Apprenticeship: 40 Jump-Start Ideas for You and Your Business.

What Is It Like to Work in a Nudge Unit?

This post is based on a question that was posed to me on Quora, What does it look like to work at the Behavioural Insights Team, or any other Nudge Unit?

If you are interested in nudging within the government context, I would check out the book by David Halpern, Inside the Nudge Unit, which essentially addresses the genesis of the Behavioral Insights Team in the UK and its approach to execution, which includes addressing problems one nudge at a time.

For some additional flavor on the US side and how nudging has affected policy, with some of those ideas being implemented in the White House Behavioral Sciences Team, check out Cass Sunstein’s book, Simpler. I am not sure how that team is currently doing given the Trump administration and policies to dismantle organizations from both the outside and within, but it is a good book. Although it’s been some time since I read that book, I recall a distinct a vibe around calculating return on investment as a key process intertwined with implementing nudges within government.

If you are looking for information on implementing nudge units within companies, I published a book in 2015, Inside Nudging: Implementing Behavioral Science Initiatives. Like the books previously mentioned, I typically have found nudge units to be very project-focused, and they often include elements of randomized controlled trials (RCTs) or experimental work. I have also found that nudge units tend to work best when they deliberately address elements and processes around Goals, Research, Innovation, and Testing. I call this Behavioral GRIT (essentially organizational fortitude to implement behavioral science). I propose that how companies implement behavioral science initiatives should be based around a vision implemented through a predominant organizational model (like an innovation center or consulting office) and then adding implementation elements (like an advisory board or a chief behavioral scientist). I’ve made an appendix to my book available here, which details predominant organization models and implementation elements to jump-start one’s thinking: https://steveshuconsulting.com/wp-content/uploads/2015/08/Inside-Nudging-Appendix-A-August-27-2015-v7.pdf. Leafing through that appendix might also give you some indirect ideas about what it might be like to work in a commercial nudge unit (recognizing that these vary a lot).

Finally, I also put together a short video introducing behavioral science initiatives (again related to commercial settings), and the video might also provide some additional color:

How Do Consultants Stay Organized Before Creating Client Deliverables?

This post is based on a question posed to me on Quora.

Individual consultants and engagement managers usually develop their own ways of organizing information. Here are a few concepts I have used (but situations vary widely based on the situation and team composition):

  1. Document the problem statement, the problem solving structure, the set of workstreams and activities to execute the project, governance process, and structure of each deliverable. In some cases the engagement team may create (up front) an entire blueprint to execute the project.
  2. Develop interview guides according to the problem solving structure and conduct interviews with the interview guides in mind. Take raw notes roughly in line with the interview guides. Create managerial meeting summaries along the way and file the raw notes.
  3. Organize notes, specimens, analyses, deliverables, potentially by workstream folders and subfolders. For example, there may be four major workstreams at the top level like assessment, financial modeling, technology options, and business strategy. Here is a chart from my book, The Consulting Apprenticeship, and it illustrates the conceptual concept of workstreams and activities (I could have also included deliverables on the chart, but the sizing for print would have been an issue).
  4. Have clear consultant assignments and owners for workstreams and major activity areas. Have individual consultants organize and present progress (for their realm) to engagement managers and principals at least 1–2 times per week. This helps to both keep project cadence up and put pressure on the individual consultants to be organized and deliver the pieces that they have responsibility for. Make course adjustments or staff adjustments as needed.

Note that some consulting firms also set up “war rooms” where there may be many wallboards, whiteboards, and the like for maintaining an Agile-like environment. Elements of that can eventually get converted into more formal deliverables. You may also run into some tech-savvy clients that also encourage the use of things like Slack or InVision for collaboration and communication with the client.

In summary, careful planning, note taking, analysis, project organization, storyboarding, and regular project leader reviews are needed to keep information organized and a consulting engagement on the rails.

Edit 2/13/2019: Special mention to Kevin Johannes Wörner who has a nice video covering advice for new strategy consultants (9 lifehacks) based on his experiences, including at Roland Berger. I really resonate with Kevin’s comments about how to deal with massive amounts of data and information coming at you in the client environment and focusing on the few items that really drive results. 

Is Behavioral Economics Used in Business?

This post is reproduced from an answer that I wrote on Quora to the question posed to me, “Is Behavioral Economics Actually Used in Business?”

Broad, conscious, and concerted efforts to apply behavioral economics probably did not begin until sometime after 2008 with the release of Thaler and Sunstein’s book, Nudge. And then when new applications of behavioral economics started, they seemed to be mostly applied in the government space. While many principles of behavioral economics have preceded that and have been applied, I think the introduction of a popular science book and clever packaging helped the principles rise to a new level of consciousness.

Since then, the implementation of behavioral economics/science initiatives in business has started to grow, but it’s still somewhat early. Back in 2010, I was part of a team that started one of the early behavioral finance centers with one of the investment manufacturing firms in the United States. We introduced thought leadership materials like some of the other firms, but we also took it further by equipping financial advisors with specific tools to help assess the behavioral architecture of retirement plans offered by companies.

One key observation I’ve had is that certain companies can have different strategies for implementing behavioral economics. This can include wanting to do holistic innovation that touches on service, products, and applications. Or they can pursue narrower approaches, like research and thought leadership. I wrote a book, Inside Nudging: Implementing Behavioral Science Initiatives in 2016, mostly to help bridge the gap between science and the application in business. That work is based on my background in closely collaborating with academics in behavioral economics and companies looking to be on the cutting edge.

Here are a few examples of how the field of behavioral economics has touched business in my corner of the world relative to behavioral finance:

As an additional reference, you might also be interested in checking out the book by one of my colleagues, The Smarter Screen. That book specifically addresses behavioral economics in a digital world.